Russia Stocks Fall 20% in World’s First Bear Market Since March

Russia Stocks Fall 20% in World’s First Bear Market Since March

By Michael Patterson and Laura Cochrane

June 22 (Bloomberg) -- Russia’s Micex Index tumbled more than 20 percent from its 2009 peak, becoming the world’s first benchmark equity index to enter a bear market since global stocks began rallying in March.

The index of ruble-denominated sharesslid 7.8 percent to 937.98, bringing its decline since June 1 to 22 percent. The 30- company gauge posted the steepest drop worldwide today and has led a slide from New York to Mumbai this month on concern the global recession will persist longer than investors estimated.

The Micex, which rallied as much as 135 percent since October, reversed direction after reaching the most expensive level relative to profit estimates since January 2007, according to Bloomberg data. Russia’s economy may shrink 7.5 percent this year as industrial output slumps, unemployment rises and investors pull capital from the world’s largest energy exporter, the World Bank said today. The lender also forecast a 2.9 percent contraction in the global economy.

“The market needs to pause because it has been going up too much,” saidNicholas Field, who helps manage about $11 billion in emerging-market stocks at Schroders Plc in London, including Russian equities. “Nothing goes in a straight line.”

The MSCI All-Country World Index has dropped 6 percent from its 2009 high, paring its gain from a six-year low on March 9 to 38 percent.

No V-Shaped Rebound

The Russian economy shrank an annual 9.8 percent in the first quarter, the most in 15 years, as companies struggled to raise funds and falling incomes crimped consumer demand. Industrial output shrank a record annual 17.1 percent in May.

“Some of Russia’s main industrial production data was disappointing and is a reminder that the real economy is going to be impacted quite severely this year,” said Michael Wang, an emerging-markets strategist at Morgan Stanley in London. “There is not going to be a quick V-shaped recovery in Russia.”

Earnings for Russian companies may tumble 61 percent in 2009 before rebounding 12 percent next year, according to forecasts from Citigroup Inc. in New York. That compares with a 24 percent decline this year for developing nations as a whole, and a 23 percent increase in 2010, the brokerage’s data showed.

After Russia, Croatian stocks are the closest to a bear- market decline since the global equity rally began. The Balkan nation’s Crobex Index is down 15 percent from its 2009 high. A bear market is defined as a decline of 20 percent or more.

Brazil, India, China

Brazil’s Bovespa Index has dropped 8.7 percent from its peak this year, while India’s Bombay Stock Exchange Composite Index slid 7.4 percent. The Shanghai Composite Index closed today at its highest level since July 28.

The Russian market’s “extreme” rally since October makes a 20 percent decline less meaningful than for markets that didn’t rise as much, said Lombard Odier & Cie.’s Curtis Butler.

“It seems a bit absurd at this point to be using the phrase ‘bear market,’” Butler, chief investment officer of emerging-market equities at Lombard, said in a phone interview. The decline is a “healthy development that will allow investors who have booked significant profits to offload shares to those who have not participated,” he said.

Investors fled Russia last year, taking capital outflows to a record $132.7 billion, as Urals crude, the country’s main export blend, declined as much as 77 percent from a July peak. A five-day war with Georgia in August increased speculation that overseas companies would reduce investments, after the conflict was condemned by the U.S.

Russian corporations slashed output and cut staff after the collapse of New York investment bank Lehman Brothers Holdings Inc. froze credit markets worldwide and the global economy slipped into its first recession since World War II. The Micex tumbled as much as 73 percent last year.

Best Performer

The Russian market’s rally from its four-year low on Oct. 24 to its peak this month was the steepest among stock benchmarks in the world’s 70 biggest markets. Investors returned as oil more than doubled and the nation’s currency, the ruble, recovered from a 19 percent slide against the dollar last year.

Urals crude has dropped 4.8 percent from its high this year, while the ruble has weakened 2.3 percent against the dollar since June 1.

To contact the reporters on this story: Michael Patterson in London atmpatterson10@bloomberg.net; Laura Cochrane in London atlcochrane3@bloomberg.net